Diversified industrial manufacturer Eaton Corporation (NYSE:ETN)
today announced net income per share of $1.07 for the fourth
quarter of 2011, a 30 percent increase over net income per share of
$0.82 in the fourth quarter of 2010. Net income in both periods
included charges related to acquisition integration. Before
acquisition integration charges, operating earnings per share in
the fourth quarter of 2011 were $1.08 compared to $0.85 per share
in the fourth quarter of 2010, an increase of 27 percent.
Sales in the quarter were $4.0 billion, 10 percent higher than
the same period in 2010. Net income was $362 million compared to
$280 million in 2010, an increase of 29 percent. Operating
earnings, which exclude acquisition integration charges, for the
fourth quarter of 2011 were $366 million compared to $291 million
in 2010, an increase of 26 percent.
Alexander M. Cutler, Eaton chairman and chief executive officer,
said, “Our earnings per share came in below the midpoint of our
guidance range, driven by revenues in December falling roughly $200
million short of our expectations partially offset by a lower tax
rate and better segment operating margins.
“About 75 percent of the revenue shortfall was in our Electrical
sector, with the shortfall spread evenly among the U.S., Europe,
and Asia Pacific,” said Cutler. “The shortfall in the U.S. was
principally due to customer requested delays of major project
shipments. The shortfall in Europe was due to the slowing Eurozone
economy, and in Asia Pacific the shortfall was due to a slowdown in
China as a result of restrictions on credit availability.
“The balance of the revenue shortfall was due to lower truck
demand in Brazil and production reductions and shutdowns late in
the quarter at several U.S. and European auto assembly plants,”
said Cutler.
“We believe that many of the factors behind the shortfall in
fourth quarter revenues are temporary and, as a result, should not
have a significant impact on 2012 revenues,” said Cutler.
“Sales growth in the fourth quarter of 10 percent consisted of 9
percent growth in core sales and 1 percent growth from
acquisitions. End markets in the fourth quarter grew by 8 percent,”
said Cutler. “Our segment operating margin in the fourth quarter
was 15.1 percent, an all-time record and a notable improvement over
our segment operating margin of 14.6 percent in the third
quarter.”
For the full year 2011, sales were $16.0 billion, 17 percent
higher than 2010. Net income was $1.35 billion, an increase of 45
percent over 2010, and net income per share of $3.93 was 44 percent
more than in 2010. Operating earnings in 2011 totaled $1.36
billion, an increase of 42 percent over 2010. Operating earnings
per share for 2011 of $3.96 were 41 percent higher than in
2010.
“Our full year 2011 sales increase of 17 percent reflects strong
growth, despite a volatile global economy over the course of 2011,”
said Cutler. “We increased our earnings guidance three times during
2011, reflecting stronger markets than we had anticipated at the
start of the year.
“Looking back at 2011, it was a record year on many dimensions,”
said Cutler. “Sales exceeded $16 billion for the first time, our
segment operating margin rose by 1 1/2 percentage points to 14.2
percent, emerging markets as a percentage of sales were 27 percent,
and operating earnings per share were 15 percent above our previous
record. We completed nine acquisitions in 2011, acquiring
businesses which had total revenues in 2011 of approximately $320
million. While the global economic outlook for 2012 is uncertain
due principally to the sovereign debt problems within the Eurozone,
we remain confident that 2012 is likely to be a year of solid
growth in our overall global markets.
“We estimate our markets for 2012 will grow 5 percent, with U.S.
markets a bit stronger than markets outside the U.S. We expect to
outgrow our end markets in 2012 by approximately $320 million,”
said Cutler. “We anticipate incremental revenues in 2012 from
acquisitions net of divestitures completed in 2011 to be $90
million. Changes in exchange rates in 2012 are expected to reduce
revenues by approximately $550 million. Overall, we anticipate our
revenues in 2012 will grow by 4 percent compared to 2011.
“We expect that 2012 operating earnings per share will set
another record,” said Cutler. “We estimate that first quarter
operating earnings per share, which exclude an estimated $0.01 of
charges to integrate our recent acquisitions, will be between $0.80
and $0.90 per share. For the full year 2012, we estimate that
operating earnings per share, which exclude an estimated $0.05 of
charges to integrate our recent acquisitions, will be between $4.15
and $4.55. Based on this guidance, our operating earnings per share
in 2012 will grow between 5 percent and 15 percent.
“In light of our strong 2011 results and our outlook for 2012,
we are increasing our quarterly dividend by 12 percent, raising the
quarterly dividend from $0.34 per share to $0.38 per share,” said
Cutler.
Business Segment Results
Fourth quarter sales for the Electrical Americas segment were
$1.1 billion, up 11 percent from the fourth quarter of 2010.
Operating profits in the fourth quarter were $173 million.
Excluding acquisition integration charges of $1 million during the
quarter, operating profits totaled $174 million, up 7 percent from
the fourth quarter of 2010.
“End markets for our Electrical Americas segment grew 10 percent
during the fourth quarter, and our orders grew 11 percent,” said
Cutler. “Our operating margin was 15.5 percent.
“Our U.S. nonresidential electrical, residential electrical, and
industrial control markets showed good growth during the quarter,”
said Cutler. “For 2012, we expect our markets to increase by
approximately 5 percent.
“We won several important contracts in the fourth quarter,
including a $27 million contract for the expansion of the Panama
Canal and an $11 million contract to modernize pumping facilities
at the Niagara Power project, the largest electricity producer in
New York state,” said Cutler.
“We were pleased to complete the acquisition of switchgear
manufacturer E.A. Pedersen Company at the end of the fourth
quarter,” said Cutler. “The acquisition of Pedersen adds important
utility-oriented power products and custom engineering capabilities
for our U.S. markets.”
Fourth quarter sales for the Electrical Rest of World segment
were $699 million, 9 percent lower than the fourth quarter of 2010.
Operating profits were $69 million. Excluding acquisition
integration charges of $1 million during the quarter, operating
profits totaled $70 million, 26 percent below the fourth quarter of
2010.
“During the fourth quarter, our Rest of World electrical markets
declined 6 percent, as both Europe and APAC showed weakness,” said
Cutler. “Despite the market decline and the associated decline in
our revenues, we earned an operating margin of 10.0 percent in the
quarter.
“Orders in the fourth quarter declined 10 percent,” said Cutler.
“For 2012, our Electrical Rest of World markets are expected to
grow by 1 percent, with APAC growth at 3 percent and a 1 percent
decline in Europe.”
In the Hydraulics segment, fourth quarter sales were $705
million, 23 percent higher than the fourth quarter of 2010.
Hydraulics markets in the fourth quarter grew 9 percent compared to
the same period in 2010, with U.S. markets up 16 percent and
non-U.S. markets up 3 percent.
Operating profits in the fourth quarter were $103 million.
Excluding acquisition integration charges of $3 million in the
fourth quarter of 2011, operating profits were $106 million, up 45
percent over the fourth quarter of 2010.
“The global hydraulics market had another quarter of strong
growth, capping an outstanding year in which our global hydraulics
markets grew by 18 percent. Our bookings in the quarter grew 5
percent over the fourth quarter of 2010,” said Cutler. “For 2012,
we anticipate global hydraulics markets will increase by 4 percent,
with U.S. markets up 6 percent and non-U.S. markets up 2
percent.”
The Aerospace segment posted fourth quarter sales of $430
million, an increase of 8 percent over the fourth quarter of 2010.
Aerospace markets in the fourth quarter grew by 4 percent.
Operating profits in the fourth quarter were $78 million, up 22
percent from the fourth quarter of 2010.
“We were pleased with our fourth quarter aerospace volumes and
our operating margin of 18.1 percent,” said Cutler. “Our bookings
were up 1 percent in the quarter. For 2012, aerospace markets are
expected to grow by 5 percent.”
The Truck segment posted sales of $680 million in the fourth
quarter, up 31 percent compared to 2010. Truck markets in the
fourth quarter grew 27 percent, with U.S. markets up 52 percent and
non-U.S. markets up 10 percent. Operating profits were $137
million, more than double the operating profits in the fourth
quarter of 2010.
“For 2012, we expect good market growth, driven by the continued
rebound in NAFTA Class 8 truck production,” said Cutler. “We
anticipate our overall truck markets will grow 9 percent, with U.S.
markets growing 16 percent and non-U.S. markets growing 4
percent.”
The Automotive segment posted fourth quarter sales of $398
million, up 1 percent over the fourth quarter of 2010. Core sales
grew 8 percent in the quarter, which was offset by a 5 percent
reduction related to the divestiture of a small automotive plastics
joint venture during 2011 and by a 2 percent reduction from foreign
exchange. Automotive unit production in the fourth quarter grew by
8 percent, with U.S. markets up 20 percent and non-U.S. markets up
3 percent. Operating profits in the fourth quarter were $42
million, down 2 percent from the fourth quarter of 2010 largely due
to start-up costs associated with capacity expansion to support new
program wins in China.
“Looking at 2012, we anticipate global auto production will grow
5 percent,” said Cutler. “We expect growth in U.S. production of 7
percent and growth in non-U.S. production of about 4 percent.”
Eaton Corporation is a diversified power management company with
more than 100 years of experience providing energy-efficient
solutions that help our customers effectively manage electrical,
hydraulic and mechanical power. With 2011 sales of $16.0 billion,
Eaton is a global technology leader in electrical components and
systems for power quality, distribution and control; hydraulics
components, systems and services for industrial and mobile
equipment; aerospace fuel, hydraulics and pneumatic systems for
commercial and military use; and truck and automotive drivetrain
and powertrain systems for performance, fuel economy and safety.
Eaton has approximately 73,000 employees and sells products to
customers in more than 150 countries. For more information, visit
www.eaton.com.
Notice of conference call: Eaton’s conference call to discuss
its fourth quarter and full year 2011 results is available to all
interested parties as a live audio webcast today at 10 a.m. Eastern
time via a link on the center of Eaton’s home page. This news
release can be accessed under its headline on the home page. Also
available on the website prior to the call will be a presentation
on fourth quarter results, which will be covered during the
call.
This news release contains forward-looking statements concerning
the first quarter 2012 and full year 2012 net income per share and
operating earnings per share, the growth in full year 2012
revenues, the performance of our worldwide markets, and our growth
in relation to end markets. These statements should be used with
caution and are subject to various risks and uncertainties, many of
which are outside the company’s control. The following factors
could cause actual results to differ materially from those in the
forward-looking statements: unanticipated changes in the markets
for the company’s business segments; unanticipated downturns in
business relationships with customers or their purchases from us;
competitive pressures on sales and pricing; increases in the cost
of material and other production costs, or unexpected costs that
cannot be recouped in product pricing; the introduction of
competing technologies; unexpected technical or marketing
difficulties; unexpected claims, charges, litigation or dispute
resolutions; the impact of acquisitions and divestitures;
unanticipated difficulties integrating acquisitions; new laws and
governmental regulations; interest rate changes; changes in
currency exchange rates; stock market fluctuations; and
unanticipated deterioration of economic and financial conditions in
the United States and around the world. We do not assume any
obligation to update these forward-looking statements.
Financial Results
The company’s comparative financial results for the three months
and year ended December 31, 2011 and 2010 are available on the
company’s website, www.eaton.com.
EATON CORPORATION CONSOLIDATED STATEMENTS OF INCOME
Three months endedDecember 31
Year endedDecember 31
(In millions except for per share data) 2011 2010 2011 2010
Net
sales $ 4,033 $ 3,663 $ 16,049 $ 13,715 Cost of products
sold 2,817 2,565 11,261 9,633 Selling and administrative expense
707 644 2,738 2,486 Research and development expense 101 117 417
425 Interest expense-net 26 34 118 136 Other (income) expense-net
(8 ) 10 (38 ) (1 )
Income before income taxes 390 293
1,553 1,036 Income tax expense 29 10 201 99
Net income 361 283 1,352 937 Adjustment for net loss
(income) for noncontrolling interests 1 (3 ) (2 ) (8 )
Net income attributable to Eaton common shareholders $ 362
$ 280 $ 1,350 $ 929
Net
income per common share Diluted $ 1.07 $ 0.82 $ 3.93 $ 2.73
Basic 1.08 0.83 3.98 2.76
Weighted-average number of
common shares outstanding Diluted 338.1 342.7 342.8 339.5 Basic
334.2 337.7 338.3 335.5
Cash dividends paid per common
share $ 0.34 $ 0.29 $ 1.36 $ 1.08
Reconciliation of net income
attributable to Eaton common shareholders to operating
earnings
Net income attributable to Eaton common shareholders $ 362 $ 280 $
1,350 $ 929 Excluding acquisition integration charges (after-tax) 4
11 10 27
Operating earnings $
366 $ 291 $ 1,360 $ 956 Net
income per common share - diluted $ 1.07 $ 0.82 $ 3.93 $ 2.73
Excluding per share impact of acquisition integration charges
(after-tax) 0.01 0.03 0.03 0.08
Operating earnings per common share $ 1.08 $ 0.85
$ 3.96 $ 2.81
Net income per common share, weighted-average number of common
shares outstanding, cash dividends paid per common share and
operating earnings per common share have been restated to give
effect to the two-for-one stock split. See the accompanying notes
for additional information.
See accompanying notes.
EATON CORPORATION BUSINESS SEGMENT INFORMATION
Three months endedDecember 31
Year endedDecember 31
(In millions) 2011 2010 2011 2010
Net sales Electrical
Americas $ 1,121 $ 1,012 $ 4,192 $ 3,675 Electrical Rest of World
699 768 2,984 2,748 Hydraulics 705 571 2,835 2,212 Aerospace 430
400 1,648 1,536 Truck 680 518 2,644 1,997 Automotive 398 394
1,746 1,547
Total net sales $ 4,033
$ 3,663 $ 16,049 $ 13,715
Segment operating profit Electrical Americas $ 173 $ 163 $
605 $ 529 Electrical Rest of World 69 81 278 264 Hydraulics 103 72
438 279 Aerospace 78 63 244 220 Truck 137 66 486 245 Automotive 42
43 209 163
Total segment operating
profit 602 488 2,260 1,700
Corporate Amortization
of intangible assets (47 ) (47 ) (190 ) (181 ) Interest expense-net
(26 ) (34 ) (118 ) (136 ) Pension and other postretirement benefits
expense (37 ) (29 ) (142 ) (120 ) Other corporate expense-net (102
) (85 ) (257 ) (227 )
Income before income taxes 390 293
1,553 1,036 Income tax expense 29 10 201 99
Net income 361 283 1,352 937 Adjustment for net loss
(income) for noncontrolling interests 1 (3 ) (2 ) (8 )
Net income attributable to Eaton common shareholders $ 362
$ 280 $ 1,350 $ 929
See accompanying notes.
EATON
CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
December 31,2011
December 31,2010
(In millions)
Assets Current assets Cash $ 385 $ 333
Short-term investments 699 838 Accounts receivable-net 2,444 2,239
Inventory 1,701 1,564 Other current assets 597 532 Total current
assets 5,826 5,506 Property, plant and equipment-net 2,602
2,477 Other noncurrent assets Goodwill 5,537 5,454 Other
intangible assets 2,192 2,272 Deferred income taxes 1,134 1,001
Other assets 582 542 Total assets $ 17,873 $ 17,252
Liabilities and shareholders’ equity Current liabilities
Short-term debt $ 86 $ 72 Current portion of long-term debt 321 4
Accounts payable 1,491 1,408 Accrued compensation 420 465 Other
current liabilities 1,319 1,284 Total current liabilities 3,637
3,233 Noncurrent liabilities Long-term debt 3,366 3,382
Pension liabilities 1,793 1,429 Other postretirement benefits
liabilities 642 743 Deferred income taxes 442 487 Other noncurrent
liabilities 501 575 Total noncurrent liabilities 6,744 6,616
Shareholders’ equity Eaton shareholders’ equity 7,469 7,362
Noncontrolling interests 23 41 Total equity 7,492 7,403 Total
liabilities and equity $ 17,873 $ 17,252
See accompanying notes.
EATON CORPORATION
NOTES TO THE FOURTH QUARTER 2011 EARNINGS RELEASE
Amounts are in millions of dollars unless indicated otherwise
(per share data assume dilution).
On January 27, 2011, Eaton's Board of Directors
announced a two-for-one stock split of the Company’s common shares
effective in the form of a 100% stock dividend. The record date for
the stock split was February 7, 2011, and the additional
shares were distributed on February 28, 2011.
Accordingly, all per share amounts and average shares outstanding
presented in this earnings release have been adjusted retroactively
to reflect the stock split.
This earnings release includes certain non-GAAP financial
measures. These financial measures include operating earnings,
operating earnings per common share, and operating profit before
acquisition integration charges for each business segment, each of
which excludes amounts that differ from the most directly
comparable measure calculated in accordance with generally accepted
accounting principles (GAAP). A reconciliation of each of these
financial measures to the most directly comparable GAAP measure is
included in this earnings release. Management believes that these
financial measures are useful to investors because they exclude
transactions of an unusual nature, allowing investors to more
easily compare Eaton's financial performance period to period.
Management uses this information in monitoring and evaluating the
on-going performance of Eaton and each business segment.
Note 1. ACQUISITIONS OF BUSINESSES
In 2011 and 2010, Eaton acquired businesses and entered into a
joint venture in separate transactions. The Consolidated Statements
of Income include the results of these businesses from the dates of
the transactions or formation. These transactions are summarized
below:
Acquired businesses and joint venture
Date oftransaction
Businesssegment
Annualsales
E.A. Pedersen Company
December 29,
Electrical
$37 for 2011
A United States manufacturer of medium voltage switchgear,
metal-clad switchgear, power control buildings and relay control
panels primarily for the electrical utilities industry.
2011
Americas
IE Power, Inc.
August 31,
Electrical
$5 for 2010
A Canada-based provider of high power inverters for a variety of
mission-critical applications including solar, wind and battery
energy storage.
2011
Americas
E. Begerow GmbH & Co. KG
August 15,
Hydraulics
$84 for 2010
A Germany-based system provider of advanced liquid filtration
solutions. This business develops and produces technologically
innovative filter media and filtration systems for food and
beverage, chemical, pharmaceutical and industrial applications.
2011
ACTOM Low Voltage
June 30,
Electrical
$65 for the
A South Africa manufacturer and supplier of motor control
components, engineered electrical distribution systems and
uninterruptible power supply (UPS) systems.
2011
Rest ofWorld
year endedMay 31,2011
C.I. ESI de Colombia S.A.
June 2,
Electrical
$8 for 2010
A Colombia-based distributor of industrial electrical equipment and
engineering services in the Colombian market, focused on oil and
gas, mining, and industrial and commercial construction.
2011
Americas
Internormen Technology Group
May 12,
Hydraulics
$55 for 2010
A Germany-based manufacturer of hydraulic filtration and
instrumentation with sales and distribution subsidiaries in China,
the United States, India and Brazil.
2011
Eaton-SAMC (Shanghai) Aircraft Conveyance System
Manufacturing Co., Ltd.
March 8,
Aerospace
New joint
A 49%-owned joint venture in China focusing on the design,
development, manufacturing and support of fuel and hydraulic
conveyance systems for the global civil aviation market.
2011
venture
Tuthill Coupling Group
January 1,
Hydraulics
$35 for the
A United States and France-based manufacturer of pneumatic and
hydraulic quick coupling solutions and leak-free connectors used in
industrial, construction, mining, defense, energy and power
applications.
2011
year endedNovember 30,2010
Chloride Phoenixtec Electronics
October 12,
Electrical
$25 for the
A China manufacturer of UPS systems. Eaton acquired the remaining
shares to increase its ownership from 50% to 100%.
2010
Rest ofWorld
year endedSeptember 30,2010
CopperLogic, Inc.
October 1,
Electrical
$35 for the
A United States-based manufacturer of electrical and
electromechanical systems.
2010
Americas
year endedSeptember 30,2010
Wright Line Holding, Inc.
August 25,
Electrical
$101 for the
A United States provider of customized enclosures, rack systems,
and air-flow management systems to store, power, and secure
mission-critical IT data center electronics.
2010
Americas
year endedJune 30,2010
EMC Engineers, Inc.
July 15,
Electrical
$24 for 2009
A United States energy engineering and energy services company that
delivers energy efficiency solutions for a wide range of
governmental, educational, commercial and industrial facilities.
2010
Americas
Note 2. ACQUISITION INTEGRATION CHARGES
Eaton incurs charges related to the integration of acquired
businesses. A summary of these charges follows:
Three months ended December 31
Acquisitionintegration charges
Operating profitas reported
Operating profitexcluding
acquisitionintegration charges
2011 2010 2011 2010 2011 2010
Business
segment
Electrical Americas $ 1 $ — $ 173 $ 163 $ 174 $ 163 Electrical Rest
of World 1 13 69 81 70 94 Hydraulics 3 1 103 72 106 73 Aerospace —
1 78 63 78 64 Truck — — 137 66 137 66 Automotive — —
42 43 42 43 Total before income taxes $ 5
$ 15 $ 602 $ 488 $ 607 $ 503
After-tax integration charges $ 4 $ 11 Per common share $ 0.01 $
0.03 Year ended December 31
Acquisitionintegration charges
Operating profitas reported
Operating profitexcluding
acquisitionintegration charges
2011 2010 2011 2010 2011 2010
Business
segment
Electrical Americas $ 8 $ 2 $ 605 $ 529 $ 613 $ 531 Electrical Rest
of World 2 33 278 264 280 297 Hydraulics 4 1 438 279 442 280
Aerospace — 4 244 220 244 224 Truck — — 486 245 486 245 Automotive
— — 209 163 209 163 Total before
income taxes $ 14 $ 40 $ 2,260 $ 1,700
$ 2,274 $ 1,740 After-tax integration charges $ 10 $ 27 Per
common share $ 0.03 $ 0.08
Charges in 2011 were related primarily to CopperLogic, Tuthill
Coupling Group, Wright Line Holding, EMC Engineers and Internormen
Technology Group. Charges in 2010 were related primarily to Moeller
and Phoenixtec. These charges were included in Cost of products
sold or Selling and administrative expense, as appropriate. In
Business Segment Information, the charges reduced Operating profit
of the related business segment.
Note 3. RETIREMENT BENEFITS PLANS
The components of retirement benefits expense follow:
Three months ended December 31
Pensionbenefit expense
Other postretirementbenefits expense
2011 2010 2011 2010 Service cost $ 35 $ 30 $ 3 $ 4
Interest cost 52 50 11 12 Expected return on plan assets (58 ) (55
) — — Amortization 22 16 3 2 51 41 17 18
Curtailment loss — 1 — — Settlement loss 6 3 —
— Total expense $ 57 $ 45 $ 17 $ 18
Year ended December 31
Pensionbenefit expense
Other postretirementbenefits expense
2011 2010 2011 2010 Service cost $ 141 $ 119 $ 15 $
16 Interest cost 210 200 41 46 Expected return on plan assets (234
) (218 ) — — Amortization 88 61 12 10 205 162
68 72 Curtailment loss 1 1 — — Settlement loss 21 16
— — Total expense $ 227 $ 179 $ 68 $ 72
During the fourth quarter and full year 2011, Eaton contributed
$54 and $154, respectively, into a Voluntary Employee Benefit
Association (VEBA) trust for the pre-funding of postretirement
Medicare Part D prescription drug benefits for the Company's
eligible United States employees and retirees. No VEBA
contributions were made during 2010.
Note 4. INCOME TAXES
The effective tax rate for the fourth quarter of 2011 was 7.2%
compared to 3.3% for the fourth quarter 2010 and 12.9% for full
year 2011 compared to 9.5% for full year 2010. The higher effective
tax rates in both the fourth quarter and full year 2011, compared
to 2010, were primarily attributable to greater levels of income in
high tax jurisdictions, particularly in the United States and
Brazil, due to the continued improvement in market conditions.
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